Slotting Allowances and Manufacturers’ Retail Sales Effort
AbstractA manufacturer’s incentives to undertake noncontractible investments depend on the profit margin on her sales to the retailer, and slotting allowances can facilitate such incentives by increasing unit wholesale prices. At first glance it is tempting to conclude that slotting allowances should be particularly prevalent for product categories where the manufacturer’s scope for undertaking noncontractible sales effort is relatively large. At odds with this, the Federal Trade Commission (FTC) among other organizations, reports that slotting allowances are more commonly used for product categories where the scope for noncontractible effort by the manufacturer is presumably relatively small. To scrutinize this puzzle we set up a simple model with one manufacturer and one retailer, where the manufacturer undertakes noncontractible demand-enhancing investments. The predictions from the model are consistent with market observations.
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Bibliographic InfoArticle provided by Southern Economic Association in its journal Southern Economic Journal.
Volume (Year): 76 (2009)
Issue (Month): 1 (July)
Other versions of this item:
- Oystein Foros & Hans Jarle Kind & Jan Yngve Sand, 2008. "Slotting Allowances and Manufacturers’ Retail Sales Effort," CESifo Working Paper Series 2396, CESifo Group Munich.
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
- M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing
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